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Panel makers are primed for a wild but winning ride

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Solar panel makers and distributors have to endure a lot of uncertainty in their business. Government subsidies for solar installations, raw material shortages and consumer demand are all unpredictable.

But that's par for the course for an immature market, according to Gary Gerber, president of Sun Light & Power Co., Berkeley, Calif., which purchases modules from various manufacturers and installs the systems for customers.

A shortage of silicon constrained the number of solar cells and panels that could be manufactured, but the situation has eased in the past couple of years, he said. Now, a new supply glitch has surfaced—not from silicon shortages, but from an unusually high number of modules being sent to Spain because of uncertainties over whether the country's feed-in tariff will be extended. The problem should be short-lived, though, Gerber said.

"We basically had an unlimited supply of modules. Now they are saying they are limiting it," he said, adding that his company mostly sources products from Mitsubishi Electric Corp. and SunPower Corp. "Fortunately, we've been planning ahead so that hasn't impacted our work."

Prices for solar installations and the cost to manufacture them aren't strictly dependent on supply and demand, Gerber said. Part of the reason is that modules aren't yet being produced at the lowest cost, so prices dropped even when consumption trends were rising. "We're not to scale yet. Once we get to scale, the supply and demand curve should take over again and increasing demand should increase costs, just like what's happening with oil."

At Sun Light & Power, demand for solar products has shifted from residential needs to larger-scale multi-family and commercial projects, Gerber said, attributing it partly to the 30-percent federal solar energy investment tax credit for homeowners and businesses that is due to expire at the end of this year. Businesses in particular have a big incentive to act soon.

The solar industry is lobbying for a long-term extension, but the legislation currently in front of Congress could be held up until 2009. "That means we're essentially out of work Jan. 1 in terms of commercial work until a new version is approved," Gerber said.

Meanwhile, if the Democrats win the White House in November it could spur more aggressive U.S. measures to limit emissions of carbon dioxide, including cap-and-trade provisions opposed by President Bush.

"A year from now, I would say we'd probably have, if not an actual cap-and-trade system, something that's defined and imminent," he said. "That would give us a huge leg up on getting to grid parity. Renewable energy will be given a pass on the carbon costs and accordingly will be more valuable." Grid parity is the tipping point at which solar power is cost-competitive with other sources of energy on electricity grids.

Regardless of how U.S. legislation unfolds, solar panel makers are optimistic. After all, nearly 150 megawatts of solar capacity came online in the United States last year, according to the Solar Energy Industries Association, Washington, up 45 percent from 2006 levels to 750 megawatts—enough to power about 550,000 homes.

"We expect this trend to continue," said Rory Macpherson, manager of investor relations for Wuxi, China-based Suntech Power Holdings Co. Ltd., which designs, develops, manufactures and markets various photovoltaic cells and modules globally.

The company this year plans to produce 530 megawatts of solar panels, using 4,300 tonnes of silicon. Suntech expects the dearth of silicon in the market to be resolved within the next two years as expansions and new production facilities come on-stream.

If the market is headed to oversupply at that point, as many suggest, there is an upside, Macpherson said. "The cost of silicon would then likely drop rapidly, which in turn would reduce the cost of solar systems. This would accelerate solar's path to grid parity and would stimulate significant demand growth and absorb any excess silicon produced."

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